UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition period from_____________
to____________
Commission
File Number: 0-56168
ORGANIC AGRICULTURAL COMPANY
LIMITED
(Exact
name of registrant as specified in its charter)
Nevada |
|
82-5442097 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
Number) |
6th
Floor A, Chuangxin Yilu,
No.
2305, Technology Chuangxincheng,
Gaoxin
Jishu Chanye Technology Development District,
Harbin
City. Heilongjiang Province.
China
150090
Office:
+86 (0451) 5862-8171
(Address,
including zip code, and telephone number, including area
code,
of
Registrant’s principal executive offices)
Securities
registered pursuant to Section 12(b) of the
Act:
Title
of Each Class |
|
Trading
Symbol |
|
Name
of Each Exchange on Which Registered |
None |
|
None |
|
Not
Applicable |
Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such
filing requirements for the past
90 days. Yes þ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such
files). Yes þ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
Non-accelerated
filer ☐ |
Smaller
reporting company þ |
|
Emerging
growth company þ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12 b-2 of the Act). Yes ☐ No þ
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes ☐ No ☐
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
Indicate
the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
As of
the date of filing of this report, there were outstanding
11,724,836 shares of the issuer’s common stock, par value $0.001
per share.
TABLE
OF CONTENTS
PART I – FINANCIAL
INFORMATION
Item 1. Financial
Statements.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIC AGRICULTURAL COMPANY
LIMITED AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2020 AND MARCH 31, 2020
(EXPRESSED
IN US DOLLARS)
|
|
September 30, |
|
|
March 31, |
|
|
|
2020 |
|
|
2020 |
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash |
|
$ |
267,301 |
|
|
$ |
240,834 |
|
Accounts receivable |
|
|
16,887 |
|
|
|
5,212 |
|
Due from related parties |
|
|
3,442 |
|
|
|
- |
|
Prepaid expenses |
|
|
158,485 |
|
|
|
48,789 |
|
Inventories |
|
|
20,533 |
|
|
|
56,610 |
|
Other receivables |
|
|
8,151 |
|
|
|
13,105 |
|
Current
assets, discontinued operations (Note 3) |
|
|
- |
|
|
|
558,425 |
|
Total current
assets |
|
|
474,799 |
|
|
|
922,975 |
|
|
|
|
|
|
|
|
|
|
Property plant and equipment,
net |
|
|
3,218 |
|
|
|
4,498 |
|
Operating lease right-of-use
assets |
|
|
6,702 |
|
|
|
25,727 |
|
Non-current
assets, discontinued operations (Note 3) |
|
|
- |
|
|
|
1,981,547 |
|
Total
assets |
|
$ |
484,719 |
|
|
$ |
2,934,747 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders’ equity |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses |
|
$ |
43,973 |
|
|
$ |
69,437 |
|
Customer deposits |
|
|
154,406 |
|
|
|
88,131 |
|
Due to related parties |
|
|
46,538 |
|
|
|
84,288 |
|
Operating lease liabilities
(current) |
|
|
19,413 |
|
|
|
18,630 |
|
Other payables |
|
|
114,794 |
|
|
|
8,411 |
|
Current
liabilities, discontinued operations (Note 3) |
|
|
- |
|
|
|
335,405 |
|
Total current
liabilities |
|
|
379,124 |
|
|
|
604,302 |
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities, discontinued operations (Note 3) |
|
|
- |
|
|
|
1,424,600 |
|
Total liabilities |
|
|
379,124 |
|
|
|
2,028,902 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity |
|
|
|
|
|
|
|
|
Preferred stock;
$0.001 par value, 1,000,000 shares authorized, no shares issued and
outstanding at September 30, 2020 and March 31, 2020 |
|
|
- |
|
|
|
- |
|
Common stock; $0.001 par value, 74,000,000 shares authorized;
11,724,836 and 11,693,836 shares issued and outstanding at
September 30, 2020 and March 31, 2020, respectively |
|
|
11,725 |
|
|
|
11,694 |
|
Additional paid-in capital |
|
|
2,115,261 |
|
|
|
2,612,954 |
|
(Deficit) |
|
|
(1,978,904 |
) |
|
|
(1,752,671 |
) |
Other
comprehensive income (loss) |
|
|
(42,487 |
) |
|
|
9,891 |
|
Total
shareholders’ equity of the Company |
|
|
105,595 |
|
|
|
881,868 |
|
Non-controlling interest |
|
|
- |
|
|
|
23,977 |
|
Total shareholders’ equity |
|
|
105,595 |
|
|
|
905,845 |
|
Total
liabilities and shareholders’ equity |
|
$ |
484,719 |
|
|
$ |
2,934,747 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
ORGANIC AGRICULTURAL COMPANY
LIMITED AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
FOR
THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND
2019
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
|
|
For the Three Months Ended
September 30,
|
|
|
For the Six Months Ended
September 30,
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
30,988 |
|
|
$ |
27,991 |
|
|
$ |
99,516 |
|
|
$ |
55,368 |
|
Cost of sales |
|
|
28,441 |
|
|
|
21,459 |
|
|
|
67,790 |
|
|
|
36,509 |
|
Gross
profit |
|
|
2,547 |
|
|
|
6,532 |
|
|
|
31,726 |
|
|
|
18,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
18,730 |
|
|
|
164,038 |
|
|
|
80,584 |
|
|
|
287,602 |
|
Operating
(loss) |
|
|
(16,183 |
) |
|
|
(157,506 |
) |
|
|
(48,858 |
) |
|
|
(268,743 |
) |
Other
income |
|
|
1,032 |
|
|
|
- |
|
|
|
1,414 |
|
|
|
- |
|
(Loss) before
provision for income taxes |
|
|
(15,151 |
) |
|
|
(157,506 |
) |
|
|
(47,444 |
) |
|
|
(268,743 |
) |
Provision for
income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net (loss) from
continuing operations |
|
|
(15,151 |
) |
|
|
(157,506 |
) |
|
|
(47,444 |
) |
|
|
(268,743 |
) |
(Loss) on the sale of discontinued operations, net of income
taxes |
|
|
- |
|
|
|
- |
|
|
|
(941,819 |
) |
|
|
- |
|
Income (loss)
from discontinued operations, net of income taxes (Note 3) |
|
|
- |
|
|
|
106 |
|
|
|
743 |
|
|
|
(7,286 |
) |
Total income
(loss) from discontinued operations |
|
|
- |
|
|
|
106 |
|
|
|
(941,076 |
) |
|
|
(7,286 |
) |
Net (loss) |
|
|
(15,151 |
) |
|
|
(157,400 |
) |
|
|
(988,520 |
) |
|
|
(276,029 |
) |
Less: net
income (loss) from discontinued operations attributable to
non-controlling interests |
|
|
- |
|
|
|
52 |
|
|
|
364 |
|
|
|
(3,570 |
) |
Net
(loss) attributable to common shareholders |
|
$ |
(15,151 |
) |
|
$
|
(157,452 |
) |
|
$ |
(988,884 |
) |
|
$ |
(272,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) from continuing
operations |
|
$ |
(15,151 |
) |
|
$ |
(157,506 |
) |
|
$ |
(47,444 |
) |
|
$ |
(268,743 |
) |
Net income
(loss) from discontinued operations |
|
|
- |
|
|
|
54 |
|
|
|
(941,440 |
) |
|
|
(3,716 |
) |
Net
(loss) attributable to common shareholders |
|
$ |
(15,151 |
) |
|
$
|
(157,452 |
) |
|
$ |
(988,884 |
) |
|
$ |
(272,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) per share continuing operations
– basic and diluted |
|
$ |
- |
|
|
$ |
(0.01 |
) |
|
$ |
- |
|
|
$ |
(0.02 |
) |
(Loss) per
share discontinued operations – basic and diluted |
|
|
- |
|
|
|
-
|
|
|
|
(0.08 |
) |
|
|
- |
|
Basic
and diluted (loss) per share |
|
$ |
- |
|
|
$ |
(0.01)
|
|
|
$ |
(0.08 |
) |
|
$ |
(0.02 |
) |
Weighted average
number of shares outstanding- basic and diluted |
|
|
11,724,836 |
|
|
|
11,223,736 |
|
|
|
11,721,776 |
|
|
|
11,198,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(15,151 |
) |
|
$ |
(157,400 |
) |
|
$ |
(988,520 |
) |
|
$ |
(276,029 |
) |
Foreign
currency translation adjustment |
|
|
(58,591 |
) |
|
|
2,489 |
|
|
|
(61,549 |
) |
|
|
1,891 |
|
Comprehensive
(loss) |
|
|
(73,742 |
) |
|
|
(154,911 |
) |
|
|
(1,050,069 |
) |
|
|
(274,138 |
) |
Less: comprehensive income (loss) attributable to non-controlling
interests |
|
|
- |
|
|
|
(4,923 |
) |
|
|
801 |
|
|
|
(11,569 |
) |
Comprehensive (loss) attributable to the common shareholders |
|
$ |
(73,742 |
) |
|
$
|
(149,988 |
) |
|
$ |
(1,050,870 |
) |
|
$ |
(262,569 |
) |
The
accompanying notes are an integral part of these unaudited
consolidated financial statements
ORGANIC AGRICULTURAL
COMPANY LIMITED AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2020 AND
2019
(EXPRESSED
IN US DOLLARS, EXCEPT SHARES)
|
|
Common stock |
|
|
Additional
Paid-in |
|
|
|
|
|
Other
Comprehensive |
|
|
Total
Shareholders’ |
|
|
Non-
controlling |
|
|
Total
Shareholders Equity and |
|
|
|
Quantity |
|
|
Amount |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Equity |
|
|
Interest |
|
|
NCI |
|
Balance at March 31, 2019 |
|
|
11,167,736 |
|
|
$ |
11,168 |
|
|
$ |
1,833,730 |
|
|
$ |
(1,278,133 |
) |
|
$ |
(1,473 |
) |
|
$ |
565,292 |
|
|
$ |
3,759 |
|
|
$ |
569,051 |
|
Net (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(115,007 |
) |
|
|
- |
|
|
|
(115,007 |
) |
|
|
(3,622 |
) |
|
|
(118,629 |
) |
Sale of common
shares |
|
|
56,000 |
|
|
|
56 |
|
|
|
72,744 |
|
|
|
- |
|
|
|
- |
|
|
|
72,800 |
|
|
|
- |
|
|
|
72,800 |
|
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,426 |
|
|
|
2,426 |
|
|
|
(3,024 |
) |
|
|
(598 |
) |
Balance at June 30, 2019, (unaudited) |
|
|
11,223,736 |
|
|
|
11,224 |
|
|
|
1,906,474 |
|
|
|
(1,393,140 |
) |
|
|
953 |
|
|
|
525,511 |
|
|
|
(2,887 |
) |
|
|
522,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(157,452 |
) |
|
|
- |
|
|
|
(157,452 |
) |
|
|
52 |
|
|
|
(157,400 |
) |
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,464 |
|
|
|
7,464 |
|
|
|
(4,975 |
) |
|
|
2,489 |
|
Balance at September 30, 2019, (unaudited) |
|
|
11,223,736 |
|
|
$ |
11,224 |
|
|
$ |
1,906,474 |
|
|
$ |
(1,550,592 |
) |
|
$ |
8,417 |
|
|
$ |
375,523 |
|
|
$ |
(7,810 |
) |
|
$ |
367,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020 |
|
|
11,693,836 |
|
|
$ |
11,694 |
|
|
$ |
2,612,954 |
|
|
$ |
(1,752,671 |
) |
|
$ |
9,891 |
|
|
$ |
881,868 |
|
|
$ |
23,977 |
|
|
$ |
905,845 |
|
Net (loss) income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(973,733 |
) |
|
|
- |
|
|
|
(973,733 |
) |
|
|
364 |
|
|
|
(973,369 |
) |
Sale of common
shares |
|
|
31,000 |
|
|
|
31 |
|
|
|
46,469 |
|
|
|
- |
|
|
|
- |
|
|
|
46,500 |
|
|
|
- |
|
|
|
46,500 |
|
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,395 |
) |
|
|
(3,395 |
) |
|
|
437 |
|
|
|
(2,958 |
) |
Divestment of Lvxin |
|
|
- |
|
|
|
- |
|
|
|
(544,162 |
) |
|
|
762,651 |
|
|
|
9,608 |
|
|
|
228,097 |
|
|
|
(24,778 |
) |
|
|
203,319 |
|
Balance at June 30, 2020, (unaudited) |
|
|
11,724,836 |
|
|
|
11,725 |
|
|
|
2,115,261 |
|
|
|
(1,963,753 |
) |
|
|
16,104 |
|
|
|
179,337 |
|
|
|
- |
|
|
|
179,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,151 |
) |
|
|
- |
|
|
|
(15,151 |
) |
|
|
- |
|
|
|
(15,151 |
) |
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(58,591 |
) |
|
|
(58,591 |
) |
|
|
- |
|
|
|
(58,591 |
) |
Balance at September 30, 2020, (unaudited) |
|
|
11,724,836 |
|
|
$ |
11,725 |
|
|
$ |
2,115,261 |
|
|
$ |
(1,978,904 |
) |
|
$ |
(42,487 |
) |
|
$ |
105,595 |
|
|
$ |
- |
|
|
$ |
105,595 |
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements
ORGANIC AGRICULTURAL
COMPANY LIMITED AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2020 AND
2019
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
|
|
For
the Six Months Ended
September
30,
|
|
|
|
2020 |
|
|
2019 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash Flows from
Operating Activities |
|
|
|
|
|
|
|
|
Net (loss) from
discontinued operations |
|
$ |
(941,076 |
) |
|
$ |
(7,286 |
) |
Net (loss) from continuing
operations |
|
|
(47,444 |
) |
|
|
(268,743 |
) |
Depreciation and amortization |
|
|
1,428 |
|
|
|
1,996 |
|
Changes in operating assets and
liabilities for sale of discontinued operations |
|
|
953,062 |
|
|
|
- |
|
Changes in operating assets and
liabilities, discontinued operations |
|
|
(744 |
) |
|
|
7,259 |
|
Changes in operating assets and
liabilities, continuing operations: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(11,129 |
) |
|
|
- |
|
Prepayments and deferred
expenses |
|
|
(104,577 |
) |
|
|
2,030 |
|
Inventories |
|
|
37,363 |
|
|
|
27,484 |
|
Right-of-use asset |
|
|
19,534 |
|
|
|
(6,589 |
) |
Other receivables |
|
|
5,349 |
|
|
|
(19,623 |
) |
Accounts payable and accrued
expenses |
|
|
(26,671 |
) |
|
|
23,543 |
|
Customer deposits |
|
|
60,784 |
|
|
|
(52,073 |
) |
Due to (from) related parties |
|
|
(82,076 |
) |
|
|
54,005 |
|
Lease liability |
|
|
- |
|
|
|
5,453 |
|
Other
payables |
|
|
(16 |
) |
|
|
8,002 |
|
Net
cash (used in) operating activities |
|
|
(136,213 |
) |
|
|
(224,542 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
Cash
disbursed on divestment of Lvxin |
|
|
(1,343 |
) |
|
|
- |
|
Net
cash (used in) investing activities |
|
|
(1,343 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from sale of common
stock |
|
|
46,400 |
|
|
|
242,780 |
|
Proceeds from advances for purchase
of shares |
|
|
106,500 |
|
|
|
- |
|
Proceeds
from related parties loans |
|
|
- |
|
|
|
32,294 |
|
Net
cash provided by financing activities |
|
|
152,900 |
|
|
|
275,074 |
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate fluctuations on cash |
|
|
9,783 |
|
|
|
(28,467 |
) |
Net
increase in cash |
|
|
25,127 |
|
|
|
22,065 |
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year-continuing
operations |
|
|
240,834 |
|
|
|
11,695 |
|
Cash,
beginning of year-discontinued operations |
|
|
1,340 |
|
|
|
1,258 |
|
Cash, beginning of year |
|
|
242,174 |
|
|
|
12,953 |
|
Cash, end of year-continuing
operations |
|
|
267,301 |
|
|
|
33,861 |
|
Cash, end of
year-discontinued operations |
|
|
- |
|
|
|
1,157 |
|
Cash,
end of year |
|
$ |
267,301 |
|
|
$ |
35,018 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for
income taxes |
|
$ |
- |
|
|
$ |
- |
|
Cash paid for
interest |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
(Loss) on sale
of discontinued operations |
|
$ |
(941,819 |
) |
|
$ |
- |
|
Divestment of
Lvxin |
|
$ |
203,319 |
|
|
$ |
- |
|
Operating ROU
assets obtained in exchange for lease liabilities |
|
$ |
19,413 |
|
|
$ |
37,736 |
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
ORGANIC AGRICULTURAL
COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Organic
Agricultural Company Limited (“Organic Agricultural”, the
“Company”, “we” or “us”) was incorporated in the State of Nevada on
April 17, 2018.
The
Company, through its subsidiaries with headquarters in Harbin,
China, sells selenium-enriched products and other agricultural
products. At September 30, 2020, the Company’s subsidiaries
were:
|
● |
Organic
Agricultural (Samoa) Co., Ltd. (“Organic Agricultural Samoa”), a
limited company incorporated in Samoa on December 15, 2017, is
wholly owned by Organic Agricultural. Organic Agricultural Samoa
owns all of the outstanding shares of capital stock of Organic
Agricultural Company Limited (Hong Kong). |
|
● |
Organic
Agricultural Company Limited (Hong Kong) (“Organic Agricultural
HK”), which was established on December 6, 2017 under the laws of
Hong Kong, is wholly owned by Organic Agricultural Samoa. Organic
Agricultural HK owns all of the registered equity of Heilongjiang
Tianci Liangtian Agricultural Technology Development Company
Limited. |
|
● |
Heilongjiang
Tianci Liangtian Agricultural Technology Development Company
Limited. (“Tianci Liangtian”), a company incorporated in
Heilongjiang, China on November 2, 2017, is wholly owned by Organic
Agricultural HK. Tianci Liangtian owns all of the registered equity
of Heilongjiang Yuxinqi Agricultural Technology Development Company
Limited. |
|
● |
Heilongjiang
Yuxinqi Agricultural Technology Development Company Limited
(“Yuxinqi”), a company incorporated in Heilongjiang, China on
February 5, 2018, is wholly owned by Tianci Liangtian. Yuxinqi
sells agricultural products, including paddy and other crops, to
customers. |
Reorganization
On
May 16, 2018, the Company completed a corporate reorganization to
combine several controlled entities (now referred to as the
“subsidiaries”) into Organic Agricultural. The specific
transactions related to this reorganization are as
follows:
On
March 31, 2017, Hao Shuping and the shareholders of Baoqing County
Lvxin Paddy Rice Plant Specialized Cooperative (“Lvxin”) signed an
Equity Transfer Agreement, whereby shareholders of Lvxin
transferred 51% of the controlling interest in Lvxin to Hao
Shuping. Hao Shuping agreed to pay the Lvxin shareholders RMB
2,029,586 (US$305,472) in cash and cause the company that would
become Organic Agricultural to issue to them 152,736 shares (valued
at US$152,736). Hao Shuping and the shareholders of Lvxin also
signed an irrevocable supplemental agreement that gave Hao Shuping
voting and managerial control over Lvxin. By June 22, 2018, Tianci
Liangtian paid all of the consideration to Lvxin’s former
shareholders.
On
January 1, 2018, pursuant to the Equity Transfer Agreement between
Hao Shuping and Tianci Liangtian, Hao Shuping transferred his 51%
controlling interest in Lvxin to Tianci Liangtian. As control of
both entities resided with Hao Shuping, we accounted for the
combination of Lvxin with Tianci Liangtian as a transaction between
entities under common control.
On
January 8, 2018, the shareholders of Tianci Liangtian transferred
ownership of Tianci Liangtian to Organic Agricultural HK, which is
wholly owned by Organic Agricultural Samoa.
On
May 16, 2018, the Company issued 10,000,000 shares of its common
stock, par value $0.001 to the shareholders of Organic Agricultural
Samoa, in exchange for 100% of the outstanding shares of Organic
Agricultural Samoa (the “Share Exchange”).
As a
result of the Share Exchange, Hao Shuping acquired 48.8% of the
Company’s outstanding shares. Prior to the Share Exchange, Hao
Shuping controlled Lvxin and Tianci Liangtian. Therefore, the Share
Exchange was accounted for as a business combination of entities
under common control in accordance with ASC 805-50-30-5.
Accordingly, the assets and liabilities of the Company and its
subsidiaries are presented at their carrying values at the date of
the transaction; the Company’s historical shareholders’ equity was
retroactively restated to the first period presented, as the
acquisition of Organic Agricultural Samoa, Organic Agricultural HK,
Tianci Liangtian and Lvxin was treated as a combination of entities
under common control.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(Continued)
On
April 24, 2020 Tianci Liangtian entered into an Equity Transfer
Agreement providing for the transfer to Lou Zhengui of Tianci’s 51%
interest in the equity of Baoqing County Lvxin Paddy Rice Plant
Specialized Cooperative. The Agreement transferred the equity to
Lou Zhengui as of April 30, 2020. Tianci Liangtian retained
responsibility for the liabilities incurred by Lvxin prior to April
30, 2020, including debt of 257,731 RMB (approx. US$36,380) owed by
Lvxin to Yuxingqi. Tianci Liangtian also waived a debt of 3,672,002
RMB (approx. US$518,321) owed by Lvxin to Tianci
Liangtian.
In
exchange for the 51% interest in Lvxin, Lou Zhengui assumed the
obligation to satisfy a debt of 300,000 RMB (approx. US$42,350)
owed by Tianci Liangtian to Hao Shuping, a member of the
Registrant’s Board of Directors.
The
business of Lvxin is growing paddy rice. The divestment of Lvxin by
Tianci will enable Tianci to focus on its other business:
processing and marketing food stuffs.
In
accordance with U.S. GAAP, the financial position and results of
operations of Lvxin are presented as discontinued operations and,
as such, have been excluded from continuing operations for all
periods presented. The restated historical financial statements
reflecting the divestment are unaudited, but the March 31, 2020
balance sheet information has been derived from the Company’s
historical audited annual reports. The sum of the individual
earnings per share amounts from continuing operations and
discontinued operations may not equal the total Company earnings
per share amounts due to rounding. The cash flows and comprehensive
income related to Lvxin have not been segregated and are included
in the Condensed Consolidated Statements of Cash Flows and
Comprehensive Income, respectively, for all periods presented. With
the exception of Note 3, the Notes to the Unaudited Condensed
Consolidated Financial Statements reflect the continuing operations
of the Company. See Note 3 - Discontinued Operations below for
additional information regarding discontinued
operations.
Certain
amounts in the prior year’s condensed consolidated financial
statements and related footnotes thereto have been reclassified to
conform with the current year’s presentation as a result of the
spin-off of Lvxin.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
Management
has determined there is substantial doubt about our ability to
continue as a going concern as a result of our lack of significant
revenues and recurring losses. If we are unable to generate
significant revenue or secure additional financing, we may be
required to cease or curtail our operations. Our financial
statements do not include adjustments that might result from the
outcome of this uncertainty.
The
Company’s operations have been financed primarily by proceeds from
sales of shares. The Company received $46,400 during the six months
ended September 30, 2020. The Company received $106,500, (included
in other payables) during the six months ended September 30, 2020,
for the future sale of 70,000 shares. These funds were used for
working capital.
Management
intends to expand product offerings to include value-added
products, both products based on rice and products based on other
food stuffs, such as organic red beans and millet.
The
marketing personnel of the Company will endeavor to expand
awareness of our brand, open new marketing channels, and educate
the nation about the health benefits of selenium-enriched
rice.
In
this manner, Management hopes to generate sufficient operating cash
inflow to support its future operations and development of the
Company in addition to capital raised from sales of shares and
shareholders’ support based on need.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Basis of presentation
The accompanying condensed
consolidated financial statements have been prepared in accordance
with U.S. GAAP for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments of a normal and
recurring nature considered necessary for a fair presentation have
been included in the accompanying condensed consolidated financial
statements. The results of operations for the interim period are
not necessarily indicative of the results that will be realized for
the entire fiscal year. These condensed consolidated financial
statements should be read in conjunction with Organic Agricultural
Company’s audited financial statements and accompanying notes
thereto as of and for the year ended March 31, 2020 included in
Company’s current report on Form 10-K as filed with the SEC on
August 14, 2020.
Principles of consolidation
The
consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
The consolidated financial statements include the assets,
liabilities, and net income or loss of these
subsidiaries.
The
Company’s subsidiaries as of September 30, 2020 are listed as
follows:
Name |
|
Place
of
Incorporation
|
|
Attributable
equity interest
% |
|
|
Authorized
capital |
|
Organic
Agricultural (Samoa) Co., Ltd. |
|
Samoa |
|
|
100 |
|
|
USD |
1,000,000 |
|
Organic
Agricultural Company Limited (Hong Kong) |
|
Hong
Kong |
|
|
100 |
|
|
HKD |
10,000 |
|
Heilongjiang
Tianci Liangtian Agricultural Technology Development Company
Limited |
|
China |
|
|
100 |
|
|
|
0 |
|
Heilongjiang
Yuxinqi Agricultural Technology Development Company
Limited |
|
China |
|
|
100 |
|
|
|
0 |
|
Use of estimates
The
preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and
expenses during the reporting periods. Management makes these
estimates using the best information available at the time the
estimates are made; however, actual results could differ from those
estimates. One significant item subject to such estimates and
assumptions is the inventory valuation allowance. These estimates
are often based on complex judgments and assumptions that
management believes to be reasonable but are inherently uncertain
and unpredictable. Actual results could differ from these
estimates.
Cash
Cash
consists of cash on hand and bank deposits, which are unrestricted
as to withdrawal and use. All highly liquid investments with
original stated maturities of three months or less are classified
as cash. The Company’s cash consist of cash on hand and cash in
bank, as of September 30, 2020 and March 31, 2020.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Revenue recognition
Effective
April 1, 2018, the Company adopted Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 606 —
Revenue from Contracts with Customers. Under ASC 606, the Company
recognizes revenue from the commercial sales of products and
contracts by applying the following steps: (1) identify the
contract with a customer; (2) identify the performance obligations
in the contract; (3) determine the transaction price; (4) allocate
the transaction price to each performance obligation in the
contract; and (5) recognize revenue when each performance
obligation is satisfied.
The
Company recognizes revenue when the amount of revenue can be
reliably measured, it is probable that economic benefits will flow
to the entity, and specific criteria have been met for each of the
Company’s activities as described below.
The
Company sells paddy and selenium-enriched paddy products, rice and
other agricultural products. All revenue is recognized when it is
both earned and realized. The Company’s policy is to recognize the
sale when the products, ownership and risk of loss have transferred
to the purchasers, and collection of the sales proceeds, if not
prepaid, is reasonably assured, all of which generally occur when
the customer receives the products. Accordingly, revenue is
recognized at the point in time when delivery is made.
Given
the nature of this revenue source of the Company’s business and the
applicable rules guiding revenue recognition, the revenue
recognition practices for the sale do not contain estimates that
materially affect results of operations nor does the Company have
any policy for return of products.
Fair value measurements
The
Company applies the provisions of FASB ASC 820, Fair Value
Measurements for fair value measurements of financial assets
and financial liabilities and for fair value measurements of
nonfinancial items that are recognized or disclosed at fair value
in the financial statements. ASC 820 also establishes a framework
for measuring fair value and expands disclosures about fair value
measurements.
Fair
value is defined as the price that would be received when selling
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In determining
the fair value for the assets and liabilities required or permitted
to be recorded, the Company considers the principal or most
advantageous market in which it would transact, and it considers
assumptions that market participants would use when pricing the
asset or liability.
ASC
820 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes
three levels of inputs that are to be used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to measurements involving
significant unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are as follows:
Level
1: Unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices, other than those in Level 1, in markets that are
not active or for similar assets and liabilities, or inputs that
are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable
(supported by little or no market activity).
Financial
assets and liabilities of the Company primarily consists of cash,
account receivables, prepaid expenses, inventories, other
receivables, accounts payable and accrued liabilities, customer
deposits, due to related parties, and other payables. As at
September 30, 2020 and March 31, 2020, the carrying values of these
financial instruments approximated their fair values due to the
short-term nature of these instruments.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Functional currency and foreign currency
translation
An
entity’s functional currency is the currency of the primary
economic environment in which it operates. Normally that is the
currency of the environment in which the entity primarily generates
and expends cash. Management’s judgment is essential to determine
the functional currency by assessing various indicators, such as
cash flows, sales price and market, expenses, financing and
inter-company transactions and arrangements. The functional
currency of the Company is the Chinese Renminbi (“RMB’), except the
functional currency of Organic Agricultural HK is the Hong Kong
Dollar (“HKD”), and the functional currency of Organic Agricultural
Samoa and Organic Agricultural is the United States dollar (“US
Dollars” “USD” or “$”). The reporting currency of these
consolidated financial statements is in US
Dollars.
The
financial statements of the Company, which are prepared using the
RMB and the HKD, are translated into the Company’s reporting
currency, the US Dollar. Assets and liabilities are translated
using the exchange rate at each reporting period end date. Revenue
and expenses are translated using average rates prevailing during
each reporting period, and shareholders’ equity is translated at
historical exchange rates. Adjustments resulting from the
translation are recorded as a separate component of accumulated
other comprehensive income or loss.
Transactions
denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates
prevailing at the dates of the transactions. Foreign currency
exchange gains and losses resulting from these transactions are
included in operations.
The
exchange rates used for foreign currency translation are as
follows:
|
|
|
|
For
the three months ended
September
30,
|
|
March 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
|
|
|
(USD to RMB/USD to HKD) |
|
(USD to RMB/USD to HKD) |
|
(USD to RMB/USD to HKD) |
Assets and
liabilities |
|
period end exchange
rate |
|
6.8033/7.7501 |
|
7.1383/7.8399 |
|
7.0896/7.7529 |
Revenue and expenses |
|
period average |
|
6.9201/7.7506 |
|
7.0163/7.8294 |
|
N/A |
|
|
|
|
For
the six months ended
September
30,
|
|
March 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
|
|
|
(USD to RMB/USD to HKD) |
|
(USD to RMB/USD to HKD) |
|
(USD to RMB/USD to HKD) |
Assets and
liabilities |
|
period end exchange
rate |
|
6.8033/7.7501 |
|
7.1383/7.8399 |
|
7.0896/7.7529 |
Revenue and expenses |
|
period average |
|
7.0028/7.7510 |
|
6.9198/7.8347 |
|
N/A |
Income taxes
The
Company follows FASB ASC Topic 740, Income Taxes, which
requires the recognition of deferred income taxes for the
differences between the basis of assets and liabilities for
financial statements and income tax purposes. Under this method,
deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable
income. Deferred tax assets are also recognized for operating
losses and for tax credit carryforwards. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
ASC
740-10-30 requires income tax positions to meet a
more-likely-than-not recognition threshold to be recognized in the
financial statements. Under ASC 740-10-40, previously recognized
tax positions that no longer meet the more-likely-than-not
threshold should be derecognized in the first subsequent financial
reporting period in which that threshold is no longer
met.
The
application of tax laws and regulations is subject to legal and
factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are subject to change as a result of changes
in fiscal policy, changes in legislation, the evolution of
regulations and court rulings. Therefore, the actual liability may
be materially different from our estimates, which could result in
the need to record additional tax liabilities or potentially
reverse previously recorded tax liabilities or the deferred tax
asset valuation allowance.
China
According
to the “PRC Income Tax Law”, Tianci Liantian and Yuxinqi are
subject to a 25% standard enterprise income tax in the
PRC.
United
States
The
Company is subject to the U.S. corporation tax rate of
21%.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Samoa
Organic
Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under
the current laws of Samoa, it is not subject to income
tax.
Hong
Kong
Organic
Agricultural Company Limited (Hong Kong) was incorporated in Hong
Kong and is subject to Hong Kong profits tax. Organic Agricultural
Company Limited (Hong Kong) is subject to Hong Kong taxation on its
activities conducted in Hong Kong and income arising in or derived
from Hong Kong. The applicable statutory tax rate is
16.5%.
Earnings (loss) per share
The
Company computes earnings (loss) per share (“EPS”) in
accordance with FASB ASC 260, Earnings Per Share. ASC 260
requires companies with complex capital structures to present basic
and diluted EPS. Basic EPS is measured as net income (loss) divided
by the weighted average common shares outstanding during the
period.
Diluted
EPS is similar to basic EPS but presents the dilutive effect on a
per share basis of contracts to issue ordinary common shares (e.g.,
convertible securities, options and warrants) as if they had been
converted at the beginning of the periods presented, or issuance
date, if later. The computation of diluted EPS includes the
estimated impact of the exercise of contracts to purchase common
stock using the treasury stock method and the potential common
shares associated with convertible debt using the if-converted
method. Potential common shares that have an anti-dilutive effect
(i.e., those that increase earnings per share or decrease loss per
share) are excluded from the calculation of diluted EPS.
Share-based compensation
The
Company follows the provisions of FASB ASC 718 requiring employee
equity awards to be accounted for under the fair value method.
Accordingly, share-based compensation is measured at grant date,
based on the fair value of the award and recognized over its
vesting period. No equity instruments were granted during the three
and six months ended September 30, 2020 and 2019, and no
compensation expense is required to be recognized under provisions
of ASC 718 with respect to employees.
Segment information and geographic data
The
Company is operating in one segment in accordance with the
accounting guidance in FASB ASC Topic 280, Segment
Reporting. The Company’s revenues are from the sales of
agricultural products to customers in the People’s Republic of
China (“PRC”). All assets of the Company are located in the
PRC.
Concentration of credit risk
The
Company maintains cash balances in three banks in China. In China,
the insurance coverage of each bank is RMB500,000 (approximately
USD$73,000). As of September 30, 2020, the Company had
approximately RMB1,259,000 (approximately USD$185,000) in excess of
the insurance amounts.
During
the three months ended September 30, 2020, major customers Huiye,
Qian Li, Hao Shuping and Beiqinhai generated 32%, 22%, 21% and 17%
of revenue, respectively. During the three months ended September
30, 2019, Shouhang Commerce & Trade generated 85% of
revenue.
During
the six months ended September 30, 2020, major customers Shouhang
Commerce & Trade, Jiufu Zhenyuan and Huiye generated 31% 31%
and 15% of revenue, respectively. During the six months ended
September 30, 2019, major customer Shouhang Commerce & Trade
and Jiufu Zhenyuan generated 53% and 35% of revenue,
respectively.
Recently adopted accounting standards
Leases
In
July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842):
Targeted Improvements, which provides an additional, optional
transition method related to implementing the new lease standard.
ASU 2018-11 provides that companies can initially apply the new
lease standard at adoption and recognize a cumulative-effect
adjustment to the opening balance of retained earnings in the
period of adoption. The Company adopted the guidance as of April 1,
2019, there was no cumulative-effect adjustment to the Company’s
opening balance of retained earnings in the period of adoption. See
Note 9 - Leases for further details.
We do
not believe any recently issued but not yet effective accounting
standards, if currently adopted, would have a material effect on
the condensed consolidated financial position, statements of
operations and cash flows.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
3. DISCONTINUED OPERATIONS
As
discussed in Note 1. Basis of Presentation above, on April 30,
2020, the Company completed the divestment of Lvxin and the
requirements for the presentation of Lvxin as a discontinued
operation were met on that date. Accordingly, Lvxin’s historical
financial results are reflected in the Company’s unaudited
condensed consolidated financial statements as discontinued
operations. The Company did not allocate any general corporate
overhead or interest expense to discontinued operations.
The
financial results of Lvxin are presented as income (loss) from
discontinued operations, net of income taxes in the unaudited
Condensed Consolidated Statements of Operations. The following
table presents the financial results of Lvxin for the reporting
periods prior to April 30, 2020.
|
|
Three months ended
September 30,
|
|
|
Six months ended September 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Net sales |
|
$ |
- |
|
|
$ |
(1,641 |
) |
|
$ |
37,317 |
|
|
$ |
113,323 |
|
Cost of sales |
|
|
- |
|
|
|
(1,747 |
) |
|
|
36,574 |
|
|
|
120,654 |
|
Gross profit |
|
|
- |
|
|
|
106 |
|
|
|
743 |
|
|
|
(7,331 |
) |
Selling, general and administrative expenses |
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
390 |
|
Operating income (loss) |
|
|
- |
|
|
|
111 |
|
|
|
743 |
|
|
|
(7,721 |
) |
Other income (loss) |
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
435 |
|
Income (loss) before income taxes |
|
|
- |
|
|
|
106 |
|
|
|
743 |
|
|
|
(7,286 |
) |
Income tax (expense) benefit |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income (loss) from discontinued operations, net of income
taxes |
|
|
- |
|
|
|
106 |
|
|
|
743 |
|
|
|
(7,286 |
) |
Less: Net income (loss) attributable to non-controlling
interest |
|
|
- |
|
|
|
52 |
|
|
|
364 |
|
|
|
(3,570 |
) |
Net income (loss) from discontinued operations attributable to
controlling interest |
|
$ |
- |
|
|
$ |
54 |
|
|
$ |
379 |
|
|
$ |
(3,716 |
) |
The
following table summarizes the carrying value of major classes of
assets and liabilities of Lvxin, reclassified as assets and
liabilities of discontinued operations at March 31,
2020.
|
|
March 31,
2020 |
|
ASSETS |
|
|
|
Cash |
|
$ |
1,340 |
|
Inventories, net |
|
|
557,085 |
|
Total current assets, discontinued operations |
|
|
558,425 |
|
Operating lease right-of-use assets |
|
|
1,981,547 |
|
Total assets, discontinued operations |
|
$ |
2,539,972 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
Due to related parties |
|
$ |
37,146 |
|
Operating lease liabilities (current) |
|
|
298,259 |
|
Total current liabilities, discontinued operations |
|
|
335,405 |
|
Operating lease liabilities (non-current) |
|
|
1,424,600 |
|
Total liabilities, discontinued operations |
|
$ |
1,760,005 |
|
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
4. PREPAID EXPENSES
Prepaid
expenses include prepayments for expenses, and prepayments of
processing charges and products to be purchased. As of September
30, 2020 and March 31, 2020, prepayments and deferred expenses were
$158,485 and $48,789, respectively.
|
|
September 30, |
|
|
March 31, |
|
|
|
2020 |
|
|
2020 |
|
|
|
(Unaudited) |
|
|
|
|
Prepayments for
expenses |
|
$ |
43,357 |
|
|
$ |
32,882 |
|
Prepayments of processing charges
and products to be purchased: |
|
|
|
|
|
|
|
|
Baoqing County
Fengnian Agricultural Product Purchase and Sale Ltd. |
|
|
5,508 |
|
|
|
5,643 |
|
Heilongjiang
Yaohe County Heifengyuan Apiculture Ltd. |
|
|
5,553 |
|
|
|
10,264 |
|
Youyi County Hengsheng Rice Industry Ltd. |
|
|
104,067 |
|
|
|
- |
|
Total |
|
$ |
158,485 |
|
|
$ |
48,789 |
|
NOTE
5. INVENTORIES
Inventories
are comprised of raw materials, and finished goods (including
processed rice and other agricultural products).
Raw
materials include all costs of materials purchased to be used
in production of the Company’s products.
Manufactured
goods, rice and other products includes all expenditures
incurred in bringing the goods to the point of sale and putting
them in a saleable condition.
The
Company values inventory on its balance sheet at the lower of cost
or net realizable value. Inventories consisted of the
following:
|
|
September 30, |
|
|
March 31, |
|
|
|
2020 |
|
|
2020 |
|
|
|
(Unaudited) |
|
|
|
|
Rice and other
products |
|
$ |
10,072 |
|
|
$ |
41,153 |
|
Packing and
other materials |
|
|
10,461 |
|
|
|
15,457 |
|
Total
inventories at cost |
|
$ |
20,533 |
|
|
$ |
56,610 |
|
NOTE
6. INCOME TAXES
A
reconciliation of income (loss) before income taxes for domestic
and foreign locations for the three and six months ended September
30, 2020 and 2019 is as follows:
|
|
For
the three months ended
September 30,
|
|
|
|
2020 |
|
|
2019 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
United States |
|
$ |
(50,788 |
) |
|
$ |
(48,789 |
) |
Foreign |
|
|
35,637 |
|
|
|
(108,717 |
) |
(Loss) before
income taxes |
|
$ |
(15,151 |
) |
|
$ |
(157,506 |
) |
|
|
For
the six months ended
September 30,
|
|
|
|
2020 |
|
|
2019 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
United States |
|
$ |
(67,368 |
) |
|
$ |
(73,855 |
) |
Foreign |
|
|
19,924 |
|
|
|
(194,888 |
) |
(Loss) before
income taxes |
|
$ |
(47,444 |
) |
|
$ |
(268,743 |
) |
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
6. INCOME TAXES (Continued)
The
difference between the U.S. federal statutory income tax rate and
the Company’s effective tax rate was as follows:
|
|
September 30, |
|
|
September 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
U.S. federal statutory
income tax rate |
|
|
21 |
% |
|
|
21 |
% |
U.S. Valuation allowance |
|
|
(21 |
)% |
|
|
(21 |
)% |
Rates for Tianci Liangtian and
Yuxinqi, net |
|
|
25 |
% |
|
|
25 |
% |
PRC
Valuation allowance |
|
|
(25 |
)% |
|
|
(25 |
)% |
The
Company’s effective tax rate |
|
|
(0 |
)% |
|
|
(0 |
)% |
The
Company did not recognize deferred tax assets since it is not
likely to realize such deferred taxes. The deferred tax would apply
to the Company in the U.S. and to Yuxinqi and Tianci Liangtian in
China.
As of
September 30, 2020, Yuxinqi and Tianci Liangtian have total net
operating loss carry forwards of approximately $670,000 in the PRC
that expire in 2024. Due to the uncertainty of utilizing these
carry forwards, the Company provided a 100% valuation allowance on
all deferred tax assets of approximately $167,000 and $166,000
related to its operations in the PRC as of September 30, 2020 and
March 31, 2020, respectively. The PRC valuation allowance has
increased by approximately $1,000 and $38,000 for the six months
ended September 30, 2020 and 2019, respectively.
The
Company has incurred losses from its United States operations
during all periods presented of approximately $464,000. The
Company’s United States operations consist solely of ownership of
its foreign subsidiaries, and the losses arise from administration
expenses. Accordingly, management provided a 100% valuation
allowance of approximately $98,000 and $83,000 against the deferred
tax assets related to the Company’s United States operations as of
September 30, 2020 and March 31, 2020, respectively, because the
deferred tax benefits of the net operating loss carry forwards in
the United States will not likely be utilized. The US valuation
allowance has increased by approximately $15,000 and $16,000 for
the six months ended September 30, 2020 and 2019,
respectively.
The
Company is subject to examination by the Internal Revenue Service
(IRS) in the United States as well as by the taxing authorities in
China, where the firm has significant business operations. The tax
years subject to examination vary by jurisdiction. The table below
presents the earliest tax year that remain subject to examination
by major jurisdiction.
|
|
The
year as of |
U.S.
Federal |
|
March
31, 2019 |
|
|
|
China |
|
December
31, 2017 |
United
States
The
Company is subject to the U.S. corporation tax rate of
21%.
Samoa
Organic
Agricultural (Samoa) Co., Ltd was incorporated in Samoa and, under
the current laws of Samoa, it is not subject to income
tax.
China
Tianci
Liantian and Yuxinqi are subject to a 25% standard enterprise
income tax in the PRC. There was no provision for income taxes for
the three and six months ended September 30, 2020 and
2019.
NOTE
7. OTHER PAYABLES
Other
payables consisted of the following as of the periods
indicated:
|
|
September 30, |
|
|
March 31, |
|
|
|
2020 |
|
|
2020 |
|
|
|
(Unaudited) |
|
|
|
|
Advances for purchase
of shares |
|
$ |
114,667 |
|
|
$ |
8,167 |
|
Others |
|
|
127 |
|
|
|
244 |
|
|
|
$ |
114,794 |
|
|
$ |
8,411 |
|
As of
March 31, 2020, the Company had received $8,167 as an advance for
the purchase of common shares of which $7,500 was refunded on April
3, 2020. As of September 30, 2020, The Company had received
$114,667 as an advance for the purchase of common shares which were
not issued yet.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
8. RELATED PARTY TRANSACTIONS
Amounts
due to related parties consisted of the following as of the periods
indicated:
|
|
September 30, |
|
|
March 31, |
|
|
|
2020 |
|
|
2020 |
|
|
|
(Unaudited) |
|
|
|
|
Hao Shuping |
|
$ |
- |
|
|
$ |
38,874 |
|
Shen Zhenai |
|
|
38,445 |
|
|
|
37,647 |
|
Xun
Jianjun |
|
|
8,093 |
|
|
|
7,767 |
|
|
|
$ |
46,538 |
|
|
$ |
84,288 |
|
Hao
Shuping is the largest shareholder of the Company, Shen Zhenai is
the President, Chairman of the Board, director and shareholder of
the Company, and Xun Jianjun is the CEO and shareholder of the
Company. These advances represent temporary borrowings for
operating costs between the Company and management. They are
non-interest bearing and due on demand.
Amounts
due from related parties consisted of the following as of the
periods indicated:
|
|
September 30, |
|
|
March 31, |
|
|
|
2020 |
|
|
2020 |
|
|
|
(Unaudited) |
|
|
|
|
Hao Shuping |
|
$ |
3,442 |
|
|
$ |
- |
|
It is
non-interest bearing and due on demand.
During
the three months ended September 30, 2020, Hao Shuping purchased
agricultural products from the Company which generated $6,853 of
revenue.
NOTE
9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
On
April 1, 2019, the Company adopted FASB ASC 842, “Leases” (“new
lease standard”). The new lease standard was adopted using the
optional transition method approach that allows for the cumulative
effect adjustment to be recorded without restating prior periods.
The Company has elected the practical expedient package related to
the identification, classification and accounting for initial
direct costs whereby prior conclusions do not have to be reassessed
for leases that commenced before the effective date. As the Company
will not reassess such conclusions, the Company has not adopted the
practical expedient to use hindsight to determine the likelihood of
whether a lease will be extended or terminated or whether a
purchase option will be exercised.
Tianci
Liangtian has an operating lease for office space (approximately
666 square meters). Under the terms of the lease, Tianci Liangtian
paid approximately $1,592 in lease deposits and committed to make
annual lease payments. In December 2018, Yuxingqi renewed the lease
agreement. Under the renewed terms, annual lease payments were
RMB290,000 (approximately US$42,000) for the period from December
6, 2018 to December 5, 2019. On December 20, 2019, the lease was
renewed. Under the renewed terms, annual lease payments are
RMB290,000 (approximately US$42,000, including VAT tax) for the
period from December 20, 2019 to December 19, 2020. RMB150,000
(approximately US$22,000) payment was made on December 23, 2019. As
of September 30, 2020, US$6,702 and US$19,413 was accounted as an
operating lease right-of-use asset and operating lease liabilities
(current), respectively
The
Company’s adoption of the new lease standard included new processes
and controls regarding asset financing transactions, financial
reporting and a system-related implementation required for the new
lease standard. The impact of the adoption of the new lease
standard included the recognition of right-of-use (“ROU”) asset and
lease liabilities. For the six months ended September 30, 2020 and
2019, the amortization was $19,534 and $19,768,
respectively.
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
(Continued)
Operating
leases are reflected on our balance sheet within ROU assets and the
related current operating lease liabilities. ROU assets represent
the right to use an underlying asset for the lease term, and lease
liabilities represent the obligation to make lease payments arising
from the lease agreement. ROU assets and liabilities are recognized
at the commencement date, or the date on which the lessor makes the
underlying asset available for use, based upon the present value of
the lease payments over the respective lease term. Lease expense is
recognized on a straight-line basis over the lease term, subject to
any changes in the lease or expectation regarding the
terms.
As of
September 30, 2020, the Company has the following amounts recorded
on the Company’s unaudited condensed consolidated balance
sheet:
|
|
As
of September 30,
2020
|
|
|
|
(Unaudited) |
|
Assets |
|
|
|
Right-of-use asset (non-current) |
|
$ |
6,702 |
|
Total |
|
$ |
6,702 |
|
Liabilities |
|
|
|
|
Lease
liability (current) |
|
$ |
19,413 |
|
Total |
|
$ |
19,413 |
|
Office
lease: |
|
|
|
Remaining
Lease Term |
|
1 year,
renewal option |
|
Incremental
borrowing rate |
|
|
4.9 |
% |
The
components of lease expense were as follows:
|
|
For
the six months ended
September 30,
2020
|
|
|
|
(Unaudited) |
|
Amortization of ROU Asset |
|
|
|
Office Lease |
|
$ |
19,534 |
|
Interest
expense |
|
|
- |
|
Total lease expense |
|
$ |
19,534 |
|
Future
annual minimum lease payments for non-cancellable operating leases
are as follows:
Year Ending March 31 |
|
Operating Leases |
|
|
|
|
|
2021 |
|
$ |
19,413 |
|
Thereafter |
|
|
- |
|
Total |
|
|
19,413 |
|
Less: imputed
interest |
|
|
- |
|
Total |
|
$ |
19,413 |
|
|
|
|
|
|
Reconciliation to
lease liabilities: |
|
|
|
|
Lease
liabilities - current |
|
$ |
19,413 |
|
Lease
Liabilities |
|
$ |
19,413 |
|
ORGANIC
AGRICULTURAL COMPANY LIMITED AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS
IN US DOLLARS)
NOTE
10. CONTINGENCIES
Loss
contingencies considered to be remote by management are generally
not disclosed unless they involve guarantees, in which case the
guarantee would be disclosed.
The
Company was not subject to any material loss contingencies as of
September 30, 2020 or March 31, 2020 and through the date of this
report.
NOTE
11. SUBSEQUENT EVENTS
The
COVID-19 outbreak has had a significant adverse impact and created
many uncertainties related to our business, and we expect that it
will continue to do so. The Company is experiencing challenges in
sales and has suffered a significant decrease in revenues which has
increased financial uncertainty. Our future business outlook and
expectations are very uncertain due to the impact of the COVID-19
outbreak and are very difficult to quantify. It is difficult to
assess or predict the impact of this unprecedented event on our
business, financial results or financial condition. Factors that
will impact the extent to which the COVID-19 affects our business,
financial results and financial condition include: the duration,
spread and severity of the pandemic; the actions taken to contain
the virus or treat its impact, including government actions to
mitigate the economic impact of the pandemic; and how quickly and
to what extent normal economic and operating conditions can resume,
including whether any future outbreak interrupts the economic
recovery.
On November 6, 2020 Organic Agricultural Company Limited (“Organic
Agricultural”) entered into a Cooperation Agreement with Unbounded
IOT Block Chain Limited (“Unbounded”), an entity with offices in
Xiamen City, Fujian Province. The purpose of the Cooperation
Agreement is to promote the use of blockchain technology in
agriculture, specifically the development of tracing systems for
agricultural products, the development of a blockchain-based
shopping mall for agricultural products, and related improvements
to the agricultural sector of the economy. To accomplish those
purposes, the two parties have agreed to organize Tianci Wanguan
(Xiamen) Digital Technology Co., Ltd., of which Organic
Agricultural will own 51% and Unbounded will own 49%. Each party
will provide capital resources to Tianci Wanguan in proportion to
its ownership percentage. The Cooperation Agreement provides that
Organic Agricultural will issue shares of its common stock to
Unbounded if certain technological goals specified in the
Cooperation Agreement are achieved and the revenue goals and other
targets that Organic Agricultural and Unbounded set for Tianci
Wanguan are met. Within sixty days after these conditions are
satisfied, Organic Agricultural will implement a 4.9-for-1 stock
split, following which it will issue 20 million common shares to
Unbounded. As a result of those transactions, Unbounded will own
25.86% of the outstanding shares of Organic Agricultural.
The
Management of the Company determined that there were no other
reportable subsequent events to be adjusted for and/or disclosed as
of November 16, 2020.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis of our financial condition and
results of operations are based upon our condensed consolidated
financial statements and the notes thereto included elsewhere in
this Quarterly Report on Form 10-Q, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of such financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, and expenses. On
an ongoing basis, we evaluate these estimates, including those
related to useful lives of real estate assets, bad debts,
impairment, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other
sources. There can be no assurance that actual results will not
differ from those estimates.
Application
of Critical Accounting Policies
In
preparing our financial statements, we are required to formulate
working policies regarding valuation of our assets and liabilities
and to develop estimates of those values. In our preparation of the
financial statements for the three and six months ended September
30, 2020 and 2019, there was no estimate made which was (a) subject
to a high degree of uncertainty and (b) material to our
results.
Results
of Operations
The
following table shows key components of the results of operations
during the three and six months ended September 30, 2020 and
2019:
|
|
For the three months ended
September 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
30,988 |
|
|
$ |
27,991 |
|
|
$ |
2,997 |
|
|
|
11 |
% |
Cost of Sales |
|
|
28,441 |
|
|
|
21,459 |
|
|
|
6,982 |
|
|
|
33 |
% |
Gross Profit |
|
|
2,547 |
|
|
|
6,532 |
|
|
|
(3,985 |
) |
|
|
(61 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
18,730 |
|
|
|
164,038 |
|
|
|
(145,308 |
) |
|
|
(89 |
%) |
(Loss) from operations before other income and income taxes |
|
|
(16,183 |
) |
|
|
(157,506 |
) |
|
|
141,323 |
|
|
|
(90 |
%) |
Other income |
|
|
1,032 |
|
|
|
- |
|
|
|
1,032 |
|
|
|
N/A |
|
(Loss) from operations before income taxes |
|
|
(15,151 |
) |
|
|
(157,506 |
) |
|
|
142,355 |
|
|
|
(90 |
%) |
Income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
N/A |
|
Net (loss) from continuing operations |
|
|
(15,151 |
) |
|
|
(157,506 |
) |
|
|
142,355 |
|
|
|
(90 |
%) |
Net income from discontinued operations, net of income taxes |
|
|
- |
|
|
|
106 |
|
|
|
(106 |
) |
|
|
(100 |
%) |
Net (loss) |
|
|
(15,151 |
) |
|
|
(157,400 |
) |
|
|
142,249 |
|
|
|
(90 |
%) |
Less: net income attributable to non-controlling interests |
|
|
- |
|
|
|
52 |
|
|
|
(52 |
) |
|
|
(100 |
%) |
Net (loss) attributable to common shareholders’ |
|
$ |
(15,151 |
) |
|
$ |
(157,452 |
) |
|
$ |
142,301 |
|
|
|
(90 |
%) |
|
|
For the six months ended
September 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
99,516 |
|
|
$ |
55,368 |
|
|
$ |
44,148 |
|
|
|
80 |
% |
Cost of Sales |
|
|
67,790 |
|
|
|
36,509 |
|
|
|
31,281 |
|
|
|
86 |
% |
Gross Profit |
|
|
31,726 |
|
|
|
18,859 |
|
|
|
12,867 |
|
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
80,584 |
|
|
|
287,602 |
|
|
|
(207,018 |
) |
|
|
(72 |
%) |
(Loss) from operations before other income and income taxes |
|
|
(48,858 |
) |
|
|
(268,743 |
) |
|
|
219,885 |
|
|
|
(82 |
%) |
Other income |
|
|
1,414 |
|
|
|
- |
|
|
|
1,414 |
|
|
|
N/A |
|
(Loss) from operations before income taxes |
|
|
(47,444 |
) |
|
|
(268,743 |
) |
|
|
221,299 |
|
|
|
(82 |
%) |
Income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
N/A |
|
Net (loss) from continuing operations |
|
|
(47,444 |
) |
|
|
(268,743 |
) |
|
|
221,299 |
|
|
|
(82 |
%) |
(Loss) on the sale of discontinued operations, net of income
taxes |
|
|
(941,819 |
) |
|
|
- |
|
|
|
(941,819 |
) |
|
|
N/A |
|
Net income (loss) from discontinued operations, net of income
taxes |
|
|
743 |
|
|
|
(7,286 |
) |
|
|
8,029 |
|
|
|
(110 |
%) |
Total net (loss) from discontinued operations |
|
|
(941,076 |
) |
|
|
(7,286 |
) |
|
|
(933,790 |
) |
|
|
12,816 |
% |
Net (loss) |
|
|
(988,520 |
) |
|
|
(276,029 |
) |
|
|
(712,491 |
) |
|
|
258 |
% |
Less: net income (loss) attributable to non-controlling
interests |
|
|
364 |
|
|
|
(3,570 |
) |
|
|
3,934 |
|
|
|
(110 |
%) |
Net (loss) attributable to common shareholders’ |
|
$ |
(988,884 |
) |
|
$ |
(272,459 |
) |
|
$ |
(716,425 |
) |
|
|
263 |
% |
Yuxinqi
is a marketing enterprise with a focus on milled rice and other
agricultural products. Incorporated on February 5, 2018, with a
short operating history. Yuxingqi’s sales are erratic, since a
stable customer base has not been established yet. Sales by Yuxinqi
during the six months ended September 30, 2020 were substantially
higher than during the six months ended September 30, 2019, and
sales during the three months ended September 30, 2020 were
slightly higher than during the three months ended September 30,
2019. However, sales in the recent quarter substantially lagged
sales in the latter months of calendar year 2019, during which
Yuxinqi’s operations were expanding. The expansion was stifled in
recent months by the Covid-19 pandemic and the restrictions on
business activity imposed by the government in an effort to contain
the effects of the pandemic in Heilongjiang Province.
The
cost of sales of $67,790 and $36,509 for the six months ended
September 30, 2020 and 2019, respectively, was attributable to the
sales of milled rice and other foodstuffs. Those operations yielded
a gross profit of $31,726 and $18,859 with a gross margin of 31.9%
and 34.1%, respectively. The decline in gross margin during the
three and six months ended September 30, 2020 compared to the
previous year was primarily attributable to changes in major
customers and the products they purchased. During the six months
ended of September 30, 2020, we sold the Tuohuangzhe series of rice
products, which have a gross margin of 4% (in part this low margin
was caused by quality issues during the three months end of
September 30, 2020), primarily to our customers Huiye and Qian Li,
accounting for 25% of total non-paddy revenue. In contrast, during
the same period of the previous year, the Company sold its Tianci
and Jiufu series of rice products, which have a gross margin of
35%, primarily to our customers Shouhang Commerce and Trade and
Jiufu Zhenyuan, accounting for 77% of total non-paddy revenue. The
Company did not sale the Tuohuangzhe series of rice products during
the previous year. The cost of sales of $28,441 and $21,459 for the
three months ended September 30, 2020 and 2019, respectively, was
also attributable to the sales of milled rice and other foodstuffs.
Those operations yielded a gross profit of $29,179 and $12,327 with
a gross margin of 8.2%and 23.3%, respectively. For the three months
ended September 30, 2020 and 2019, the Company’s product sales were
similar in make-up to the respective six months periods ended
September 30, 2020 and 2019. Accordingly, the discounted sales of
rice products with quality issues resulted in the lower gross
margin.
To
focus on the value-added processed products, the Company completed
the spin-off of its ownership interest in Lvxin on April 30, 2020.
During the three and six months ended September 30, 2020, the
Company incurred $941,819 of investment loss due to the divestment
of Lvxin by Tianci Liangtian.
During the
six months ended September 30, 2020 and 2019, the Company incurred
$80,584 and $287,602, respectively, in operating expenses, the
greater portion of which was attributable to administration - i.e.
salaries and office expenses. Salaries and benefits expense was
$46,636 and $87,751 and office expenses were $20,055 and $90,614,
respectively, for the six months ended September 30, 2020 and 2019.
During the three months ended September 30, 2020 and 2019, the
Company incurred $18,730 and $164,038, respectively, in operating
expenses, including salaries and benefits expense of $22,356 and
$41,856, and office expenses of $15,812 and $41,486, respectively.
In response to COVID-19, we have taken steps to reduce operating
costs and improve efficiency, including furloughing of our
employees and regulating expenditures. In addition, a deduction of
$81,254 for loss on exchange of Tianci Liangtian’s foreign currency
account, which record $1,780,351 of amount due to Organic
Agricultural in US dollar terms, was recorded in operating expenses
during the three and six months ended September 30, 2020, on
account of the decline in the USD to CNY exchange rate from 7.1383
to 6.8033.
The
Company’s continuing operations produced a net loss of $47,444 and
$268,743 for six months ended September 30, 2020 and 2019, and a
$15,151 and $157,506 net loss for the three months ended September
30, 2020 and 2019, respectively.
Liquidity
and Capital Resources
The
Company’s operations have been financed primarily by proceeds from
the sale of shares. The Company received $46,400 from the sale of
31,000 shares during the six months ended September 30, 2020, and
received an advance of $106,500 for the futute sale of common
stock. As a result, our working capital totaled $95,675. Working
capital decreased by $222,998 during the six months ended September
30 2020, primarily due to our net loss for that period and the
Company’s divestment of Lvxin.
The
largest component of working capital at September 30, 2020 was cash
of $267,301, which included $154,406 in customer deposits against
future sales and $114,794 in other payables for the future sale of
common stock.
Cash Flows
The
following table summarizes our cash flows for the six months ended
September 30, 2020 and 2019.
|
|
For
the six months ended
September
30,
|
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)
operating activities |
|
$ |
(136,213 |
) |
|
$ |
(224,542 |
) |
|
$ |
88,329 |
|
Net cash (used in) investing
activities |
|
|
(1,343 |
) |
|
|
- |
|
|
|
(1,343 |
) |
Net cash provided by financing
activities |
|
|
152,900 |
|
|
|
275,074 |
|
|
|
(122,174 |
) |
Effect of
exchange rate fluctuation on cash |
|
|
9,783 |
|
|
|
(28,467 |
) |
|
|
38,250 |
|
Net increase in cash |
|
|
25,127 |
|
|
|
22,065 |
|
|
|
3,062 |
|
Cash, beginning
of quarter |
|
|
242,174 |
|
|
|
12,953 |
|
|
|
229,221 |
|
Cash,
end of quarter |
|
$ |
267,301 |
|
|
$ |
35,018 |
|
|
$ |
232,283 |
|
During
the six months ended September 30, 2020, our operations used net
cash of $136,213. Net cash was used primarily due to the 47,443 of
net loss and the $104,577 increase in the Company’s balance for
prepaid expenses. The Company recorded $224,542 of cash use in
operating activities during the six months ended September 30,
2019.
The
Company recorded $1,343 of cash distributed with the sale of the
discontinued operations. Our financing activities during the six
months ended September 30, 2020 generated $46,400 from the sale of
common stock and received $106,500 for future shares to be issued.
During the six months ended September 30, 2019, our financing
activities generated $275,074, including $242,780 from sales of
common stock and a $32,294 loan from related parties.
Trends,
Events and Uncertainties
The
Company intends to expand its product offerings to include
value-added products, both products based on rice and products
based on other food stuffs, such as organic red beans and
millet.
Our
marketing personnel will endeavor to expand awareness of our brand,
open new marketing channels, and educate the nation about the
health benefits of selenium-enriched rice.
In
this manner, the Company hopes to make a sufficient operating cash
inflow to support the future operation and development of the
Company. There is no guarantee that the Company’s new strategy will
be successful.
The
COVID-19 outbreak has had a significant adverse impact and created
many uncertainties related to our business, and we expect that it
will continue to do so. The Company is experiencing challenges in
sales and has suffered a significant decrease in revenues which has
increased financial uncertainty. Our future business outlook and
expectations are very uncertain due to the impact of the COVID-19
pandemic and is very difficult to quantify. It is difficult to
assess or predict the impact of this unprecedented event on our
business, financial results or financial condition. Factors that
will impact the extent to which the COVID-19 pandemic affects our
business, financial results and financial condition include: the
duration, spread and severity of the pandemic; the actions taken to
contain the virus or treat its impact, including government actions
to mitigate the economic impact of the pandemic; and how quickly
and to what extent normal economic and operating conditions can
resume, including whether any future outbreaks interrupt economic
recovery.
Other
than the factors listed above we do not know of any trends, events
or uncertainties that have had or are reasonably expected to have a
material impact on our net sales or revenues or income from
continuing operations.
Off-Balance
Sheet Arrangements
We do
not currently have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our
financial condition or results of operations.
Recent
Accounting Pronouncements
New
accounting rules and disclosure requirements can significantly
impact the comparability of our financial statements. Please refer
to Note 2 of our condensed consolidated financial statements
included in this quarterly report.
There
were no recent accounting pronouncements that we expect to have a
material effect on the Company’s financial position or results of
operations.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
Not
applicable.
Item 4. Controls and
Procedures.
Evaluation of Disclosure Controls and Procedures
Our
management maintains disclosure controls and procedures, as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that are designed to provide
reasonable assurance that the material information required to be
disclosed by us in our periodic reports filed or submitted under
the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
Under
the supervision and with the participation of our management team,
including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, as of September 30, 2020. Based on this evaluation, we
concluded that our disclosure controls and procedures have the
following material weaknesses:
|
● |
The
relatively small number of employees who are responsible for
accounting functions prevents us from segregating duties within our
internal control system. |
|
● |
Our
internal financial staff lack expertise in identifying and
addressing complex accounting issues under U.S. Generally Accepted
Accounting Principles. |
|
● |
Our
Chief Financial Officer is not familiar with the accounting and
reporting requirements of a U.S. public company. |
|
● |
We
have not developed sufficient documentation concerning our existing
financial processes, risk assessment and internal
controls. |
Based
on their evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the Company’s system of disclosure
controls and procedures was not effective as of September 30, 2020
for the purposes described in this paragraph.
Changes in Internal Control over Financial
Reporting
No
changes in the Company’s internal control over financial reporting
has come to management’s attention during the Company’s last
quarter that have materially affected, or are likely to materially
affect, the Company’s internal control over financial
reporting.
PART II – OTHER
INFORMATION
Item 1. Legal
Proceedings.
We
are currently not involved in any litigation that we believe could
have a material adverse effect on our financial condition or
results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or,
to the knowledge of the executive officers of our company or any of
our subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a material adverse
effect.
Item 1A. Risk
Factors.
There
have been no material changes from the risk factors included in the
Company’s Annual Report on Form 10-K for the year ended March 31,
2020.
Item 2. Unregistered Sale
of Equity Securities and Use of Proceeds.
From
July 1, 2020 to September 30, 2020, the Company did not sell or
issue any of any shares of unregistered securities.
Item 3. Defaults upon
Senior Securities.
Not
applicable
Item 4. Mine Safety
Disclosure
Not
applicable.
Item 5. Other
Information.
None.
Item 6.
EXHIBITS
INDEX
TO EXHIBITS
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ORGANIC
AGRICULTURAL COMPANY LIMITED
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Jianjun Xun |
|
Chief
Executive Officer |
|
November
16, 2020 |
Jianjun
Xun |
|
(Principal
Executive Officer) |
|
|
|
|
|
|
|
/s/
Yongmei Cao |
|
Chief
Financial Officer |
|
November
16, 2020 |
Yongmei
Cao |
|
(Principal
Financial and Accounting Officer) |
|
|
7
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